Winter of industrial discontent looms

It has been some time since we have seen such threats of industrial action in Australian workplaces. While union membership has dropped to a low of 18 per cent, the union movement represents 1.8 million trade union members and still holds significant sway over a number of important industries and sectors in the Australian economy.

The industrial action threatened by a number of unions poses a real challenge for employers and a risk to the Australian economy.

Disputes at Qantas over outsourcing maintenance and job security together with the continuing threat of industrial action on the waterfront over a 6 per cent wage claim by the Maritime Union against Patrick is reminiscent of the airline pilots’ strike of the late 1980s and the ACTU and Patrick industrial battleground of the late 1990s.

The mining industry is also under threat of strike action. Industrial ballots by mining workers in Queensland on Thursday to approve strike action over wage rises and the use of contractors could stall production at BHP Billiton Mitsubishi Alliance’s major export coalmines.

This is in addition to potential action by public sector unions against the new NSW Coalition Government’s agenda to reform the state public sector.

The real problem with these wage demands is the effect on inflation. Inflation in Australia is above the Reserve Bank of Australia’s target rate at 3.3 per cent, compared with 2.7 per cent the previous quarter.

This is the largest quarterly rise in the inflation rate since the June 2006 quarter. Wage data released a few weeks ago by the RBA also showed annual wage growth nearing 4 per cent, putting pressure on inflation and increasing the prospect of further interest rate rises.

Inflation could be the Achilles heel for a sustained economic recovery. Higher inflation leads to higher interest rates, which can dampen economic growth. This can result in unemployment and lower investment as business either cuts costs or defers investment. These scenarios would undermine capacity in the economy and could affect productivity.

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One way to alleviate the effects of inflation on the economy is through high productivity, but we have a patchy productivity record. As the Grattan Institute report earlier this year showed, the broadest measure of productivity over the last five years has deteriorated over the last decade. The report stated that Australian labour productivity had declined to 84 per cent of the US level by 2010, the lowest since the early 1970s.

As we have seen in union submissions to Fair Work Australia minimum wage cases, there appears to be a sense of wage catch-up after the global financial crisis dampened wage increases.

The problem with this strategy is that there needs to be capacity in the economy to pay. A nexus between wage increases and productivity has been very much understated in this debate.

While unions are demanding higher wage increases and job security guarantees, employers are insisting that any further increases are dependent on productivity gains through more flexible work patterns and overtime arrangements, and greater use of performance-based pay and outsourcing.

So far unions have resisted such calls, arguing that the rising cost of living has put families under unacceptable economic stress.

This requires action by the government to clearly state a way forward in linking productivity to wage increases.

Despite the buoyancy of the mining sector, we are not out of the woods yet. We are still seeing closures and retrenchments, which are residual effects of the financial crisis and a winter of discontent in industrial relations may stall sustained economic recovery.